Your Ad Here
2012 January 16 Monday
Steve Randy Waldman On Lender Relationships

Back in 2010 Steve Randy Waldman gave an interview (which I've only just found) on consumer lending that makes some interesting points: consumer behavior toward lenders should change because lender behavior toward consumers has changed.

The financial industry has changed the economic and legal landscape surrounding consumer lending so that it simply bears no resemblance at all to interpersonal loans among people of good will in continuing relationships. But those are the norms they ask borrowers to adopt with respect to repayment. That act, demanding others act in accordance with standards from which one exempts oneself, is morally offensive. In a society which, despite economic difference, accepts no social class, ones moral obligation is to behave towards others as others must behave towards you. It is clear that, in general, banks and the special purpose entities that increasingly replace them treat their transactions with borrowers as hard-nosed business arrangements which they are willing to pursue on adversarial terms when doing so is in their interest. Borrowers should do the same. To do otherwise is to reward the cynical immorality of others, which serves no social good.

I see a growing bias toward favoring lenders basically because the lenders are powerful. For example, the Irish government was induced to bail out Irish bank bondholders at the expense of Irish taxpayers. The bail-out wasn't just for checking account depositors. It was for German and other European banks which had lent the Irish banks lots of money. The whole European debt crisis has basically played out as an attempt to prevent imprudent lenders (buyers of sovereign debt and bank debt as well as banks that lent for real estate bubbles) from having to take a bath due to their imprudence

Student debt in the US is another example where the political deck has been stacked in favor of lender. US student debt is near impossible to reduce in bankruptcy. To my knowledge it is unique in this respect. Effectively students are entering into debt peonage due to the power and corruption of both lenders and universities. They are like cigarette companies that tempt successive generations of youth into harmful addiction.

My problem with the lenders: If profligate irresponsible spenders act in ways harmful to the the commonwealth (and I think they do) then their enablers also harm society as a whole. Why should we protect these enablers by forcing others (and not just the borrowers) to bail them out? Lenders are morally culpable for creating financial bubbles and enabling irresponsible borrowing.

By Randall Parker    2012 January 16 12:20 PM Entry Permalink | Comments (0)
Only Requires $380k Per Year To Hit Top 1%

You don't even have to make a million dollars or even a half million a year to hit the top 1%. If you can hit $380k per year people will camp out in parks to protest your existence. Is that cool or what?

The range of wealth in the 1 percent is vast — from households that bring in $380,000 a year, according to census data, up to billionaires like Warren E. Buffett and Bill Gates.

Surgeons can reach the top 1%. So can, say, owners of big car dealerships. The top 1% is just not that exclusive. How disappointing.

On the other hand, most people don't know that the top 1% starts at $380k. So if you can reach the $380k threshold you can brag to people that you make enough to be in the top 1% and then decline to state just how much you make.

Of course, earning in the top 1% isn't the same as owning in the top 1%. But most people excited about Occupy Wall Street are going to miss that distinction too. If you want to signal to the OWS crowd you are above them then make $380k a year and then brag to OWS supporters.

Getting into the top 1% by income is a lot easier than getting into the top 1% by net worth. Just to make it into the top 5% you had to have over $1.5 million in assets in 2009. That's not the top 1%. That's the top 5%.

In 2009, the median net worth of the top 10% of wealth in the United States was $1,569,000. That is, if you had exactly that amount, half of the top 10% would be poorer than you and half of the top 10% would be richer than you. You would be standing exactly in the middle. By definition, we know that this must be the cut-off for the top 5% of net worth.

The people making $380k from a high salary are at much greater risk of falling out of the income top 1% than those who make their $380k from interest and dividends. The people with extensive assets are the real elite.

If you think the top 1% is out of reach how about the top 5%? Based in adjusted gross income the IRS says in 2010 about $160k was the threshold for reaching the top 5%. That's after tax deductions, including 401k contributions and HSA contributions. So realistically you've probably got to earn about $190k to make it into the top 5%.

In that last link note that the top 50% only requires $33k of income. So it is pretty easy to feel like you've surpassed half the US population. The US government spending per household (at nearly $36k) has now surpassed the level of earnings of the average American wage earner.

What's tragic about all this: It has become expensive to live in a nice neighborhood. Your ranking by looking at your income might seem high at first glance. But what are you paying for? I'm reminded of a tweet from Steve Randy Waldman: "the most expensive amenity in real estate is well-behaved neighbors." Later in the exchange tells a non-American "'d be surprised how expensive a nice life in America is even for those who care little for the trappings of success." Too true.

By Randall Parker    2012 January 16 11:38 AM Entry Permalink | Comments (4)
2011 March 02 Wednesday
More Top College Grads Wasting Talent In Non-Profit Work

Yet another story about self-indulgent Ivy Leaguers turning to NGOs, non-profits, and other pursuits that do not raise living standards.

“It’s not uncommon for me to hear of over 100 applications for a nonprofit position, sometimes many more than that, and many more Ivy League college graduates applying than before,” said Diana Aviv, chief executive of Independent Sector, a trade group for nonprofits. “Some of these people haven’t been employed for a while and are happy to have something. But once they’re there, they’ve recalibrated and reoriented themselves toward public service.”

After $200k spent on an Ivy League education a job in a non-profit is going to leave many of those grads paying down their college loans in their 30s.

Teach for America is an especially notable waste of smart brains. Teaching for a cause will not make the sleepy, dumb, lazy, and drugged kids any more able and willing to learn.

Renewed interest in public service is visible across the country. Applications for AmeriCorps positions have nearly tripled to 258,829 in 2010 from 91,399 in 2008. The number of applicants for Teach for America climbed 32 percent last year, to a record 46,359. Organizations like Harvard’s Center for Public Interest Careers have been overwhelmed — and overjoyed — with the swelling demand from talented 20-somethings.

In my post Selfish People Take Lower Paying Jobs I argued that smarter people who take jobs with less potential for wealth generation are denying the world the benefit of their brains. If the smarter people turned their backs on dead-end non-profit work and pursued science, technology, and business the result would be more inventions, innovations, scientific discoveries, healthier environments, less habitat damage, and higher living standards,

The world faces a relative paucity of low-hanging fruit for discovery and innovation and therefore Western living standards have been stagnating. We can not afford for the smarter minds to waste themselves in non-profit work.

By Randall Parker    2011 March 02 09:21 PM Entry Permalink | Comments (10)
2011 January 03 Monday
Selfish People Take Lower Paying Jobs

See how the higher income people pay far more in taxes. This suggests an obvious solution to the government financing crisis. Anyone see what it is?

In 2005, the richest 13.5% of California taxpayers (or those earning more than $100,000) paid 83% of all income taxes. Capital gains from the top 5% of taxpayers accounted for $100 billion out of the $111 billion in total capital gains reported.

“Those revenues rise and fall dramatically with the stock market, resulting in California’s unstable and volatile revenue stream,” the state Controller wrote.

After careful consideration of Reihan Salam's first post on "Threshold Earners" (people who stop working so hard because they have enough money) and his comment about fellow elite university grads (he's a Harvard alum) who choose occupations that do not maximize their earning potential or wealth generation capacity I began to see a deep problem in American society which I had previously missed.

Why is America no longer doing as well as it should? Why have wages for the lower classes stagnated for decades? The answer: Many of the smart potential big income earners, company builders, and potentially excessively high taxpayers are shirking their duties. All those non-profit organization directors with MBAs from Harvard who lecture us about what we ought to do about Africa, medically uninsured mothers, and countless other causes are failing to pay their share of taxes. When Marx said "from each according to his ability" (or was it Lenin?) what did these Ivy Leaguers think he was talking about? Running an NGO? Nope. Profit, profit, capitalistic profit.

What can we do about this problem? People choose higher paying jobs in part to get better working conditions. This suggests an obvious solution to our massive government deficits and looming unfunded entitlements disaster: Make lower salary jobs for higher IQ workers so unpleasant that people will be forced into higher paying jobs that generate more tax revenue. If you've got a degree from Princeton or Yale and you aren't bringing in $100k per year by the time you are 30 then your taxes should go up. Why hasn't anyone else thought of this idea?

And another thing: "Threshold earners" are increasing income inequality by making the upper class much too small. If they went for making far more money then the upper class would become so big it'd become the middle class.

Next time you hear someone morally posture as superior because they are a teacher or a writer or an NGO fund raiser refuse to grant them the moral high ground. Lecture them right back and demand they stop hurting our society with their selfish career choices that generate no wealth. If they went into the private sector and earned big bucks starting companies and leading existing companies to greater success their spending and job creation would skyrocket and the unemployment rate for our poorest sectors of society would plummet. Costs of government social programs would plummet while government tax revenues would surge.

This might sound like biting social commentary and sarcastic barbs at our intellectual elite. But it has the added virtue of being true.

Update: I see from comments I've got to hit my point with a sledge hammer: The lower paying jobs I am referring to are the ones taken by smarter people who could earn much more in more productive jobs: managers at do-gooder foundations, NGOs, the United Nations (maybe not so low paid), theater directors, and other jobs that require lots of brains but do not pay well. The problem we have is that lots of smart Ivy Leaguers pass up on the opportunity to make more money and do more useful work as engineers, engineering managers, pharmaceutical lab managers, factory designers, nanotech researchers, and other occupations key to the most wealth-producing parts of the economy.

If you have an Ivy or even second tier college degree and you are, say, director or fund raiser for a museum or librarian at some college or city library or administrator for an obsolete bricks-and-mortar college you are basically dodging the most productive sectors of the economy. This selfish choice of careers has two negative impacts on the rest of society:

  • Smart avoiders of high wage occupations pay less in taxes, thereby increasing the burdens on the people in the most productive sectors of the economy. Likely these smart avoiders also vote for higher taxes on those who choose more productive careers, all the while morally preening as superior.
  • Smart avoiders also do not start up the new companies and create the new industries needed to provide jobs for the less able.

Smart avoiders (smart shirkers? that sounds even better) mostly pose as morally superior SWPLs. But let us call them what they really are: massively callously selfish. Their pursuit of psychic income (pleasurable intellectual work in low stress occupations) enables them to evade real taxes on real income and reduces their contributions to the rest of society.

Dennis Mangan points to a NY Times article on Europeans who educated themselves in parasitic subjects and then found there aren't enough jobs available for parasites.

“They call us the lost generation,” said Coral Herrera Gómez, 33, who has a Ph.D. in humanities but still lives with her parents in Madrid because she cannot find steady work. “I’m not young,” she added over coffee recently, “but I’m not an adult with a job, either.”

She can not find steady work teaching humanities. The government isn't taxing the more productive enough to subsidize the smart shirkers. The NY Times article describes people who have trained to be government bureaucrats who can't get any smart shirker jobs. I say great news! Europe needs large cut-backs in shirker jobs to force people into less shirky jobs.

Dennis Mangan thinks the era of easy jobs is over.

See, these young people thought they could get degrees in easy subjects, ones that required of them no math or science, no finance or engineering or technology courses, and then they could just cruise through life with a government job and retire at age 55 or whatever. Those days are over, just as they shortly will be in the states.

I am not so optimistic. Governments will shrink, but not nearly enough. Plus, foundations and NGOs (non-governmental organizations), and quite a few other pockets of jobs for the self indulgent will survive. Those who work in the most productive jobs will have to keep carrying not just the less able but also the too large ranks of the less willing.

By Randall Parker    2011 January 03 12:19 AM Entry Permalink | Comments (25)
2010 May 17 Monday
White-Black Wealth Gap In America Widens

In spite of racial preferences in favor of blacks the black-white gap in assets widened considerably over a 23 year period. Barack Obama is in favor of more racial preferences. Think more will work? Or will more preferences just rack up bigger costs to the economy?

WALTHAM, Mass. – The wealth gap between white and African-American families increased more than four times between 1984-2007, and middle-income white households now own far more wealth than high-income African Americans, according to an analysis released on Monday by the Institute on Assets and Social Policy (IASP) at Brandeis University.

IASP, in a research brief, also reported that many African Americans hold more debt than assets and at least 25 percent of African-American families had no assets to turn to in times of economic hardship. The fourfold increase in the wealth gap, it said, reflects public policies, such as tax cuts on investment income and inheritances, which benefit the wealthiest and persistent discrimination in housing, credit and labor markets.

"Our study shows a broken chain of achievement. Even when African Americans do everything right -- get an education and work hard at well-paying jobs -- they cannot achieve the wealth of their white peers in the workforce, and that translates into very different life chances," said Thomas Shapiro, IASP director and co-author of the research brief.

If one group more readily saves and another group more readily spends and goes into debt is the first group at fault ? Think about this. How likely is it that discrimination in credit markets contributed to this difference in outcomes? Any group in America denied consumer credit would have an advantage in wealth accumulation because absent credit they'd have a much harder time living beyond their means. Credit cards are more akin to a temptation than a tool for advancement.

During the recent real estate bubble period starting back in the 1990s the US government's national policy was to extend more credit to blacks and Hispanics to counter supposed (but really just imagined) discrimination in the home loan market. But the ability to go into debt to buy a house that is beyond the means of the buyer has been a disaster for blacks. Easy credit means easy losses and burdensome debt. Blacks had their net worths harmed by this easy credit.

If blacks were discriminated against in lending then we should expect to see blacks default at lower rates than whites. Yet a 1992 study by the Boston Fed found that blacks do not have lower default rates. This is prima facie evidence of a lack of discrimination against blacks in lending.

By Randall Parker    2010 May 17 09:52 PM Entry Permalink | Comments (21)
2009 July 30 Thursday
The Upper Class Funds The US Government

Inequality and high marginal tax rates mean that a small fraction of the population pays an outsized share of taxes.

Washington, DC - The top 1 percent of tax filers earned about 22.8 percent of the nation's income in 2007 (the latest IRS data available), and paid 40.4 percent of all federal income taxes - more than the bottom 95 percent of tax filers combined, according to a Tax Foundation analysis of just-released IRS data.

Do you know why this is great news for the government? Granted, getting such a large fraction of revenue from top earners makes tax revenues more volatile. But why is income inequality great for the leviathan? Think about it. I'll explain below.

You might think that the top 1% pays to fund government programs for a large chunk of the rest of the population. But there's more going on here than that.

Both income and income tax shares for the top 1 percent of tax returns (AGI over $410,096) hit all-time highs in 2007. In Fiscal Fact No. 183, "Summary of Latest Federal Individual Income Tax Data," Tax Foundation Senior Economist Gerald Prante notes that the record-setting trend for income and income tax shares is likely to end with 2007, given the economic downturn in 2008.

"This pattern at the top of the income spectrum is the same during almost every recession and recovery," according to Prante. "Unlike middle-income wage-earners whose incomes and tax liabilities are fairly steady, high-income people have incomes and tax liabilities that fluctuate wildly with the economy. The sharp rise in federal government tax revenue from 2003 to 2007 is likely to be followed by a substantial dip in 2008, 2009 and perhaps 2010 as the economy struggles through the worst recession since the early 1980s."

Unstable revenue, sure. But since the top earners earn such a large fraction of total income inequality makes it easier for government to raise revenue. Imagine income was more evenly distributed. In that case government would need to anger more people with higher tax rates in order to collect just as much revenue. Yes, inequality is a ravenous democratically elected government's friend because inequality allows high tax rates on a small fraction of the population to bring in such a large chunk of revenue. No need to anger most voters in order to collect a lot of tax revenue.

141,000 tax returns (probably some of those are couples) bring in a fifth of all revenue but only 12% of all adjusted gross income.

Fiscal Fact No. 183, available online at, also takes a look for the first time at the top 0.1 percent of tax returns (the top 10 percent of the top 1 percent), which amounts to only 141,000 tax returns, but accounts for nearly 12 percent of AGI earned and around 20 percent of the nation's federal individual income taxes.

I expect inequality to increase because demographic trends mean a larger fraction of the population will not have high school diplomas. Texas style demographics mean greater wage inequality. Great for the leviathan.

By Randall Parker    2009 July 30 09:32 PM Entry Permalink | Comments (17)
2008 September 08 Monday
Federal Reserve Shafts Savers To Save Banks

Savers are paying a big price to bail out bank stockholders.

Indeed, a year ago, a six-month certificate of deposit earned, on average, 3.53%, according to (RATE). Today, that's down to 2.03%. A one-year CD that earned 3.75% at this point in 2007 was offered for as little as 1.92% in April, before inching up to its present 2.38%. It's hardly a secret that banks are only able to pay out such pittances thanks to depositors' knee-jerk desire for security: "Hey, I might be earning crumbs on my cash, but at least I'm not losing money."

Sure you are. Wholesale inflation has soared 9.8% in the past 12 months, the highest clip since 1981. The more widely cited consumer price index jumped to 5.6%. In other words, while your saved buck was adding 2 cents or so on one end (and even less after taxes), three times as much was getting singed off the other end of that dollar bill.

Isn't there some other way to save the financial system from collapse that involves more pain for those who made the mistakes that caused this state of affairs and less pain for those who were prudent and who lived within their means?

Update: The Congressional creatures Fannie Mae and Freddie Mac, semi-part of government, misrepresented their financial positions.

Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.

What, companies that were like public-private partnerships, working according to Congressional demands to benefit society, could be so corrupt? But wait, it has happened before, recently even.

Accusations of improper accounting are not new for either company. Earlier this decade, both companies paid large fines and ousted their top executives after accounting scandals.

Fool me once shame on you. Fool me twice shame on me. But I'm sure the Congressional allies of Fannie and Freddie feel no shame and want to make Fannie and Freddie once again ladle out risky loans to favored groups.

Congress pushed for the flood of credit to poor people that made the failure of Freddie and Fannie inevitable. So if you are getting low interest on bank deposits Congress is to blame.

Over the previous years, as the housing bubble inflated, Fannie and Freddie stepped up their purchases of the risky but profitable subprime and alt-A loans that were at the root of the mortgage crisis. Though Congress had just pushed Freddie and Fannie to accelerate purchases of loans to give the housing market a boost, Mr. Paulson was now urging lawmakers to establish stronger oversight and push the companies to raise more capital.

The intent of Congress was to help poor black and Hispanic people buy homes. (see more here). The result was disaster for those poor people and for savers and many other home buyers.

By Randall Parker    2008 September 08 05:02 PM Entry Permalink | Comments (6)
2008 September 06 Saturday
Rich People Work Harder Than Poor People

Dalton Conley, chairman of NYU’s sociology department, says the most affluent work the longest hours.

But what’s different from Weber’s era is that it is now the rich who are the most stressed out and the most likely to be working the most. Perhaps for the first time since we’ve kept track of such things, higher-income folks work more hours than lower-wage earners do. Since 1980, the number of men in the bottom fifth of the income ladder who work long hours (over 49 hours per week) has dropped by half, according to a study by the economists Peter Kuhn and Fernando Lozano. But among the top fifth of earners, long weeks have increased by 80 percent.

This is a stunning moment in economic history: At one time we worked hard so that someday we (or our children) wouldn’t have to. Today, the more we earn, the more we work, since the opportunity cost of not working is all the greater (and since the higher we go, the more relatively deprived we feel).

I personally would rather work more hours to get paid more money. But I've had jobs where my employer was happy to take the greater amount of work product I produced by working more hours without paying me any more for doing it. So how many of the people working longer hours are self-employed or have earnings very directly tied to performance? For example, salesmen working on commission have strong incentives to work longer hours.

To put it another way: Do higher income people work in more incentivized environments? Even if higher income people work in more incentivized environments that does not mean that is the initiating cause of why they work longer hours. It would be that they have a stronger preference for jobs and occupations where they can make more by working more. So lower income people of similar levels of talent put into similar jobs might not choose to work as hard at the same tasks and with the same incentives.

So then what caused the shift in work hours for higher and lower income workers? One possibility: changes in tax law. Starting in the Carter Administration capital gains taxes were cut and later under Ronald Reagan income taxes were cut on higher income people. This probably unleashed a lot of suppressed desire to work among those who have the potential for very high productivity.

But tax law changes probably don't explain the decline in hours worked by lower income workers. The men in the bottom fifth have experienced a number of changes. First off, a huge influx of cheap unskilled immigrant labor has lowered the returns on working and has reduced the dignity of manual labor. Second, the decline in marriage reduces the number of men in marriages with children with the pressures to bring home the income needed to feed and house the family. The huge decline in black male labor market participation explains part of the decline in hours worked by the poorest. That decline in labor market participation has been accompanied by an order of magnitude increase in black male incarceration.

By Randall Parker    2008 September 06 05:57 PM Entry Permalink | Comments (6)
2008 April 20 Sunday
Merely Rich Lagging Super Rich In Economic Downturn

I'm sure your heart bleeds for the people who can only afford one million dollar apartments. The poor dears are cutting back on their limo usage in New York City.

Buyers this year have already closed on 71 Manhattan apartments that each cost more than $10 million, compared with 17 apartments in that price range during all of 2007.


That said, providers of luxury goods reported anecdotal evidence of a widening gap between the merely rich and the ultrarich. Clifford Greenhouse, who owns a household-staff employment company, said he suspects that the merely rich might be starting to lag behind their far richer counterparts, and are trimming their budgets. He cited reduced demand for chauffeurs — a relatively small-ticket service — yet ever-strong demand for private chefs, butlers and “household managers.”

Darren Sukenik, a real estate broker with Prudential Douglas Elliman, said that while business may be slower for clients with a mere million to spend on apartments, none of his clients with budgets of more than $2.5 million have stopped shopping. Seth Semilof, the publisher of Haute Living, a luxury magazine, said that luxury car dealerships that advertise with him are pushing Bentleys and Rolls-Royces at the expense of less-extravagant cars like the BMW 5 Series.

Why even mention the BMW 5 Series? Surely nothing below the $110,000.00 BMW 750 Li is worth considering unless you just want a sports car. Why isn't there a $300,000 hybrid Rolls or Bentley so that the ultrarich can be environmentally conscious by boosting their gasoline mileage up to 12 or 15 miles per gallon?

By Randall Parker    2008 April 20 12:42 PM Entry Permalink | Comments (4)
2007 October 07 Sunday
Top 1% Pays More Federal Income Taxes Than Bottom 90%

The Tax Foundation reports that the percentage of US federal income taxes the top `% pay is more than the amount paid by the bottom 90%.

Washington, DC, October 4, 2007 - New data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows.

Summary of Federal Individual Income Tax Data, 2005 (updated October 2007)


Number of Returns (thousands)


($ millions)

Income Taxes Paid

($ millions)

Group's Share of Total AGI

Group's Share of Income Taxes

Income Split Point

All Taxpayers







Top 1%






above $364,657

Top 5%






above $145,283

Top 10%






above $103,912

Top 25%






above $62,068

Top 50%






 above $30,881

Bottom 50%






below $30,881

Source: IRS

If you want to break into the top 1% club then you'll have to aim for $365k per year. But remember, unless a recession happens by the time you get up to that level the threshold for top 1% membership will have risen.

Growing inequality is a boon for federal tax collections because the higher income people are taxed at higher percentage rates. The same dollar earned by a high income person nets the IRS much more in taxes collected than if a lower income person in a low tax bracket earns that dollar. The top 1% alone paid almost 40% of total federal income taxes. This is why such a big chunk of the electorate isn't strongly opposed to more federal spending. They know they won't be the ones paying for it.

The table above shows that the top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation's income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

The IRS data also shows increases in individual incomes across all income groups. Just as the highest earners lost the biggest percentage of their incomes during the recession of 2001, so they have prospered the most as the economy has continued to rebound. In sum, between 2000 and 2005, pre-tax income for the top 1 percent group grew by 19.1 percent. In the same time period, pre-tax income for the bottom 50 percent increased by 15.5 percent.

Will we reach a point where the top 1% are paying half of all income taxes?

You can see the full report here.

By Randall Parker    2007 October 07 01:44 PM Entry Permalink | Comments (14)
2007 August 09 Thursday
Net Worths Of Poorest Falling

The poor are getting poorer.

ANN ARBOR, Mich.—The rich really are getting richer and the poor are getting poorer, a new University of Michigan study shows.

The study—the most recent available analysis of long-term wealth trends among U.S. households—is based on data from the Panel Study of Income Dynamics, conducted by the U-M Institute for Social Research (ISR) since 1968.

Over the last 20 years, the net worth of the top two percentile of American families nearly doubled, from $1,071,000 in 1984 to $2,100,500 in 2005. But the poorest quarter of American families lost ground over the same period, with their 2005 net worth below their 1984 net worth, measured in constant 2005 dollars.

The poorest ten percent of families actually had a negative net worth—more liabilities than assets. The poorest 5 percent of American households had a negative net worth of a little more than $1,000 in 1984, compared to nearly $9,000 in 2005.

Does this effect hold up adjusted for race? White poor people are a rapidly dwindling percentage of the poor because blacks and especially Hispanics are increasing their proportions of the set of all poor people.

The average economic position of black householdsfell from 2003 to 2005. Note the shorter time period for this figure.

From 2003 to 2005, the average net worth of American families increased 12 percent, Stafford and Gouskova found. In constant 2005 dollars, overall average net worth, including home equity, rose from $275,600 to $309,600.

But during that period, the average net worth of African American households fell slightly, from $59,900 to $59,500. And the median net worth of households headed by high school drop-outs and by younger people, from ages 20 to 39, also declined.

Both white and black families had lower rates of participation in the stock market, but the rate of decline was stronger among black families. Slightly over six percent of black families owned stocks in 2003, compared with 5.3 percent in 2005—an 18 percent decline. Among white families, the percent owning stocks fell from 32 percent to 28 percent during the same period—a 12 percent drop.

People in their twenties are poorer than they used to be. But the college educated are making big gains.

The researchers also examined net worth dynamics across different age groups and educational levels. They found that the median household net worth of people in their 20s declined by nearly 30 percent, while the net worth of households headed by people in their 30s also fell slightly. The findings provide support for the widespread sense that it is harder than it used to be for younger people to establish themselves financially.

Those with some college education realized the strongest growth in family wealth. Their average net worth rose 31 percent during the period studied, to $341,700. College graduates showed a 10 percent rise in net worth, to $563,100 on average. But high school graduates showed only a modest increase in wealth, while the median wealth of high school drop-outs declined during the two-year period.

The smarter people can use increasingly powerful computers and other brain-enhancing tools to produce more and more. This makes brains more valuable in absolute and relative terms.

By Randall Parker    2007 August 09 10:48 PM Entry Permalink | Comments (4)
2007 July 21 Saturday
Skilled Workers Splitting With Unskilled In Germany

German unions used to band together with other unions and negotiate with management. But Der Spiegel reports that the unions which have the most skilled members are splitting off from the unions that have less skilled members.

First it was pilots, then doctors, now Germany's train drivers are breaking ranks to negotiate their own pay deals. As German skilled workers demand wage increases in line with their counterparts abroad, could this signal the end of collective bargaining?

German pilots and doctors compare themselves to pilots and doctors in other Western countries and want to make as much money as their foreign peers.

And in 2006 hospital doctors in Germany went on strike to protest the fact that their earnings were far below those doctors in other countries. In fact the relatively poor pay and difficult conditions had led to a exodus of doctors (more...) leaving Germany for the UK, Scandinavia and elsewhere.

This trend suggests that industrialized countries with relatively lower levels of income inequality will become more like the countries which have greater income inequality. The differences in wages between the most and least skilled will increase. While language serves as a barrier that slows down labor mobility in Europe many of the most educated are bilingual or trilingual. For highly skilled occupations where workers can easily move wages will rise much more rapidly than wages for the least skilled.

By Randall Parker    2007 July 21 12:54 AM Entry Permalink | Comments (2)
2007 July 12 Thursday
Most Feel Economy Getting Worse

Most feel from their standpoint that the American economy is getting worse.

A new Gallup Poll will only reinforce those who claim that while the rich get richer most Americans don't feel they are sharing in the growth in our economy. The stock market may be climbing and the unemployment remains relatively low, but 7 in 10 Americans believe the economy is getting worse -- the most negative reading in nearly six years.

Only one in three Americans rate the economy today as either excellent or good, while the percentage saying the economy is getting better fell from 28% to 23% in one month.

Oil and food prices are up. Even with the downturn in the housing market housing is much more expensive in inflation-adjusted terms in many parts of the country than it was 10 years ago. The influx of lower skilled immigrants has driven down wages at the lower end and lowered status versus the middle and upper classes.

Overall housing sales are down. But at the high end housing sales are still moderately brisk.

“The homes that are having a hard time selling are the average-priced homes,” said Vanessa Justice, a real estate agent with Pacific Union GMAC in the Bay Area, where the median house price is about $750,000. For upper-end homes, she said, “it’s actually pretty crazy right now.”


In the New York region, sales at the top end — that is, homes in the most expensive 5 percent of the market — have also been rising, while they have been falling in the middle and bottom of the market. The same is true in the San Jose, Calif.; Seattle; Denver; and Houston areas. In San Francisco, Los Angeles, Phoenix and Miami, high-end sales are down but not by nearly as much as sales in other price segments.

Parking space prices are booming in Manhattan.

In Houston, $225,000 will buy a three-bedroom house with a game room, den, in-ground pool and hot tub.

In Manhattan, it will buy a parking space. No windows, no view. No walls.

While real estate in much of the country languishes, property in Manhattan continues to escalate in price, and that includes parking spaces. Some buyers do not even own cars, but grab the spaces as investments, renting them out to cover their costs.

The social and economic distance between the classes is widening while the amount of shared experiences is falling. This trend is not compatible with a republic of citizens equal before the law.

By Randall Parker    2007 July 12 10:15 PM Entry Permalink | Comments (7)
Site Traffic Info